Will New Homeowners Struggle To Remortgage? | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 29/09/2020
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With high loan-to-value (LTV) mortgage deals being pulled from the market, homeowners who bought their first home two years ago with a 5% deposit and who are coming to the end of a two year fixed deal may be concerned about their chances of getting a new mortgage deal. For those in this situation, we’ve calculated the estimated remortgage LTV they will likely be looking to remortgage at and how easy it will be to find a new mortgage deal.

How much will your LTV fall after two years of repayments?

The good news for those who bought their first home two years ago is that a mixture of making mortgage repayments and an increase in property prices means that it is likely that the LTV will have fallen over the two year period, so they should now find it easy to get a new mortgage deal.

As an example, we have calculated what the average LTV on a house purchased two years ago would be now. A property bought in September 2018 valued at £210,500 and purchased with a 5% deposit of £200,000 would have been purchased at a 95% LTV. Over the two years, using the average 95% LTV mortgage rate from September 2018 of 3.72%, the homeowner would have roughly made £10,000 in repayments, resulting in £190,000 left on the mortgage to repay. Adding the fact that average house prices would have increased during this time, which we’ve estimated, using the Halifax House Price Index from August 2018 and August 2020, that the average £210,000 property will have increased to £226,000. So, combining the mortgage repayments with the average house price value increase, would mean that now the buyer would be remortgaging at an 84% LTV.

Saying this, these calculations are only estimates. A number of factors could result in the LTV changing, for example the actual value of the property might change depending on the area of the country or the mortgage lender could be more conservative in their valuation. In addition to this, if overpayments were made then the LTV might be lower, but if a payment holiday was taken out the LTV may be higher.

What deals are available at 85% LTV?

While the above calculations are estimates, it is likely that a large number of first-time buyers who purchased their home with a 5% deposit two years ago who are coming to the end of their two year fixed deal will be looking to remortgage at a maximum 85% LTV. Although mortgage providers have been more willing to lend at an 85% LTV during the last few months, there are currently 134 two year fixed deals at a 85% LTV and 154 five year fixed deal at the same LTV available, although some of these may not be available to those looking to remortgage. The average rate on a two year fixed deal at 85% is currently 2.88%, this is 0.84% lower than the average two year fixed deal at 95% that would have been available to first-time buyers in 2018. Meanwhile, the current average five year rate at 85% LTV 3.04%. This means that those who bought their first home with a 5% deposit and who are now looking to remortgage should not only have a good range of deals to choose from but will likely be able to remortgage at a lower rate than their initial deal.

What to do if your LTV is above 85%?

For those who find their LTV is higher than 85% getting a remortgage deal is more difficult. However, those looking to remortgage may be able to find a better deal if they have kept up-to-date with all their mortgage repayments and are looking to remortgage with their existing provider. Keeping in mind that their mortgage lender’s standard variable rate (SVR) is likely to be significantly higher than the rate they are paying on a fixed deal, it is likely to be worthwhile for homeowners in this situation to speak to a mortgage broker to find out what options are available.

What happens if house prices fall?

Another concern for those who bought their home with a low deposit is the possibility of house prices falling, which would likely increase the LTV. If house prices fall significantly and the homeowner has not repaid enough of their mortgage they may find themselves in negative equity – meaning their property is worth less than the mortgage they are paying. In this situation, homeowners will find it very difficult to find a remortgage deal. Again, although it is often very difficult to get a mortgage deal when in negative equity those in this situation should consider seeking expert advice from a mortgage broker who may be able to offer options.


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